What was the Most Important Kansas Construction Case in 2012? (Hint: Can you say “Economic Loss Doctrine?”)

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It is not often that the Kansas Supreme Court reverses Kansas judicial precedent and offers new avenues for plaintiffs to pursue claims. In David v. Hett, the Court did exactly that by expanding the ability of home owners to pursue tort claims instead of relying on breach of contract claims. What does this mean for contractors? In short, it means a residential home owner can now make claims against a contractor for breach of contract and/or negligence.

An explanation of the “economic loss doctrine” is important in understanding the significance of this decision. The economic loss doctrine is generally described as “a judicially created doctrine that sets forth the circumstances under which a tort action is prohibited if the only damages suffered are economic losses.” Courts will apply it to bar plaintiffs from asserting tort claims (negligence, fraud, etc.) in cases where the terms of the contract adequately address the parties’ risks. Courts have reasoned that when sophisticated parties enter into contracts, then in such instances tort exposure should be limited to hold the parties to the terms of their agreement.

In this case, Scott and Sherry David acted as general contractors for a home they were building in Tampa, Kansas. In doing so they contracted with Hett Construction to provide the excavation, basement, and concrete work. Hett completed the work in 1998 and in 2003 the Davids noticed unusual settling in the garage and basement. The Davids subsequently sued Hett for breach of contract, negligence, fraud, fraudulent concealment, and violation of the Kansas Consumer Protection Act. The lawsuit sought actual damages to bring the house into compliance with the original plans and specifications.

Unfortunately for the Davids, they failed to properly respond to a motion for summary judgment and the District Court was forced to deny many of their claims. To compound this injury, the District Court also held that the economic loss doctrine prevented the Davids from bringing tort claims (fraud, negligence) under circumstances governed by contract. The Davids, faced with no alternative, appealed and the Court of Appeals affirmed the District Court’s decision citing Prendiville v. Contemporary Homes, Inc., 32 Kan. App. 2d 435, 83 P.3d 1257, rev. denied 278 Kan. 847 (2004). The Davids then appealed to the Supreme Court of Kansas.

The Supreme Court of Kansas ruled that the economic loss doctrine should not bar claims by homeowners seeking to recover economic damages resulting from negligently performed residential construction services and overruled the holding Prendiville.

What does this mean for contractors and subcontractors performing work on residential construction? Well to be sure it means that homeowners now have more claims to assert in lawsuits against contractors. It also means such claims could be asserted long after contractual warranty provisions expire.